Financial Times: When you look at the international situation, there’s a lot of concern about a possible recession in the US and indeed a global economic slowdown. A lot of countries in Asia are concerned about this, and I am wondering how you in Vietnam are going to be able to deal with this, and in particular whether you think you can meet your target for growth this year of 9 per cent in these difficult circumstances?

Nguyen Tan Dung: A recession in the US economy, as well as a slowdown of the global economy, will lead to bad effects on world economies, including Vietnam’s. In 2007, the value of Vietnam’s exports was more than US$50bn, accounting for more than 60 per cent of our GDP. Total trade accounted for 160 per cent of our GDP.

With a slowdown of the global economy, the market for Vietnam’s exports would be more difficult. Vietnam’s exports to the US in 2007 reached more than US$10bn, accounting for 20 per cent of our total exports.

Given that context, we have exerted efforts to reach the goal of GDP growth of 8 per cent to 9 per cent per year and we have come up with the following major solutions. Firstly, Vietnam has become a full member of the World Trade Organisation and this is a favourable setting for Vietnam to expand export markets, not only to the US, EU, Japan, China, but also to the large markets of the Middle East countries and African countries.

We are striving to achieve the goal of 20 per cent export growth this year and I think this is a possible mission because in the first two months of this year, export growth has hit 30 per cent.

FT: Sure. So from that I gather that you’re pretty confident about the overall state of the economy, even with a US slowdown. Do you think you are able to both continue to have high growth, that you have spoken about, and control inflation, which I think is obviously another important target that you have?

NTD: Before I respond to this question, I would like to say that we will keep economic growth of 8 per cent to 9 per cent by the strategy of diversifying and expanding export markets and apart from that we will also encourage domestic investment. We have been encouraging strong investment from all economic sectors, including the private sector and state owned enterprises, and we also encourage investment from households, and we encourage the investment of the public sector, and we also strongly encourage foreign investment….

In 2007…. disbursed FDI capital was US$8bn, [which] constitutes an important momentum for the economic growth of Vietnam.

We are also very pleased with the remarkable progress in the trade and investment cooperation and relationship between the United Kingdom and Vietnam. In 2007, our two-way trade value was $1.7bn, an increase of 21 per cent against 2006 and this year this figure will increase more than 20 per cent. And in terms of investment from the UK to Vietnam, British businesses have invested in 99 projects totalling nearly US$1.5bn and 50 per cent of this committed capital has been paid in. And I believe that there are very promising prospects for British investment in Vietnam this year and the years ahead.

FT: Diversifying trade, domestic investment, these are all very much pro-growth policies, if you like, which will clearly support Vietnamese economic growth in the future. Is there not a danger that they will also be essentially helping to stoke inflation? How are you going to be able to tackle inflation at the same time as maintaining all these pro-growth policies that you’ve spoken about?

NTD: I’m very interested in controlling inflation, because our government set the target to grow at 8 per cent to 9 per cent but in combination with controlling inflation in Vietnam, because we will not let high inflation affect our growth and our development…

I think we should look at the overall picture in the world with the recession of the global economy, the high price of raw materials, the depreciation of the US dollar and the fluctuation and volatility of other strong currencies in the world, as well as natural disasters, epidemics and the high price of crude, and all these elements have strongly affected inflation in Vietnam and led to high food prices in Vietnam. These are the external reasons for high inflation in Vietnam, and are also badly affecting Vietnam’s economy. But from our side, in 2007 there have been shortcomings in the management of monetary policy in Vietnam.

We increased credit so fast… Banks in Vietnam, they want to achieve higher growth, so they increase their credit growth and loans to business and the private sector, and therefore that affected monetary management in Vietnam.

For example, [money supply] increased by 46 per cent in 2007 against 2006. Credit growth has increased by 53 per cent in 2007 against 2006 and given the context, our GDP grew at 8.5 per cent. If we look at 2006, the GDP of Vietnam grew by 8.2 per cent and the [money supply] increased by 26 per cent and the figure for credit growth was 27 per cent.

With targeted GDP growth of 8 per cent to 9 per cent this year, we will control inflation by tightening monetary policy. We will conduct a prudent and flexible fiscal policy and monetary policy in order to reduce credit growth and [the money supply] to less than 30 per cent.

FT: In reversing this excessive credit growth that you have spoken of, isn’t there a risk that with a very dramatic reversal there are going to be lots of sorts of shocks on the system? These efforts to tighten are having quite a dramatic effect, I think, on corporate life, from what I understand. Are you worried about that?

NTD: Yes, I agree with you because in order to control inflation, we also reduce credit growth and money supply by raising interest rates and in the last couple of weeks that also affected the investment and development of corporations in Vietnam.

But I think this is the right thing….It helps us to remove inefficient projects and to upgrade… [and] enhance the effectiveness of businesses. And I think all these measures to reduce credit growth and to reduce money supply…will not affect healthy projects.

As for the stock exchange and real estate, we will continue to provide loans to borrowers in order to encourage the healthy development of those markets.

FT: You talk about money supply and reining in credit growth. Some of the big borrowers in the system domestically have been state-owned enterprises, which have been borrowing a lot for a lot of expansion. Does the government feel that it needs to control borrowing by state-owned enterprises a bit more, because you also mention at the same time that you are encouraging investment by state-owned enterprises, so isn’t all this pulling in different directions?

NTD: Vietnam is a market economy therefore the banks in Vietnam operate in accordance with the principles and rules of a market economy and there is no intervention from the government for loans or borrowings….

Recently, we tightened monetary policy and we raised interest rates, and I think that will help good businesses to continue their healthy projects and to remove all the inefficient projects.

FT: I want to turn, if I may, to political matters. Is further democratisation, political reform, necessary, do you think, to achieve your economic aims, and if so, what kind of reforms might the Communist party and the government be prepared to implement?

NTD: Before I answer your question I would like to act on one point ….We have exerted efforts to control the inflation rate this year, to bring it lower than in 2007.

FT: Keep it below 2007?

NTD: I mean less than 12 per cent….Now I would like to turn to political matters. As you know, Vietnam is in the process of comprehensive reforms….aimed at building Vietnam into a wealthy country, strong country, with a rich people and a democratic, just and advanced society….

For the last 22 years, our GDP has grown by 7.5 to 8 per cent a year. And we have managed to shift our economy from a planned economy to a market economy and we have succeeded in integrating broadly and deeply into the international economy. And the most success for Vietnam is the membership of the WTO and Vietnam’s conclusion of various agreements on bilateral trade cooperation with most of the countries and territories of the world….

In the past we followed the economic model of the Soviet Union and Eastern European countries. After 20 years of reform, we have achieved high growth for many consecutive years… Social welfare has been brought to the poor and the poor have benefited from development. The prevalence of poverty in the population has been reduced from 60 per cent in 1993 to 14 per cent and Vietnam has also managed to fulfil most of the Millennium Development Goals, even prior to the deadline….

We have managed to achieve political and social stability….and our country has been stable for many years. Our population has put their confidence in the leadership of the party, state and government. Political reforms have been conducted along with economic and social reforms, and we have turned Vietnam into a law-governed state and a state for the people by the people and of the people. And the paramount right belongs to our people. For example, the National Assembly of Vietnam represents the voice and the power of our people.

…. In conclusion I would like to say that the political reforms in Vietnam have been conducted continuously in the last years in accordance with the cultural, economic and social reforms as well as in line with the historical background of Vietnam, and all the Vietnamese people always agree with the guidelines and policies by our leadership and 87m Vietnamese people have agreed with the leadership of our state, party and government.

FT: Can I just ask a specific question? Obviously the Soviet economic system that you mentioned has clearly been abandoned. I think there are a lot more questions about whether you have really abandoned the Soviet political system. Do you think there could ever come a day, for example, when the Communist Party of Vietnam could change its name on the grounds that obviously economically it is no longer communist in the ideological sense?

NTD: As you know, the name of the party of Vietnam is the Communist Party of Vietnam and our party has been selected by the decision of our people and has been established in line with the social and historical background in Vietnam…

I think the change of our party’s name would be decided by our people. The Vietnamese people always support the Vietnamese Communist Party because of the goals that our party set out, as I stated to you, to build Vietnam into a strong country, with a wealthy people and a democratic, just and advanced society.

…We should look at the past 80 years; we should look at the history of Vietnam and when the Communist Party of Vietnam was founded in order to lead the Vietnamese people to struggle for independence, freedom and unification. And we were also under the domination of French colonists and the Americans, and it took us nearly a century, and it took also millions of Vietnamese people’s lives in order to regain our freedom and independence.

For the last 20 years the Communist Party of Vietnam has succeeded in leading the Vietnamese people to shift from a centrally planned economy to a market economy with so many important achievements. Therefore, with the evidence and the practices that the Vietnamese Communist Party has done in the past, the Vietnamese people put their confidence in the party and support the party.

FT: I would like to ask a personal question actually…. You had an early political career and an early military career. When you look back to your youth, did you think you would ever get to be prime minister of a united Vietnam? When you come to retire what would you like to have achieved as prime minister of Vietnam?

NTD: I joined the People’s Armed Forces in 1961 to 1984, and I was also a soldier in the southern battle of Vietnam during the resistance against the Americans. I went to the battlefield in order to regain national independence. And I also joined the combat in the western and southern battlefields in Vietnam, and I also joined the operations to help the Cambodian people to get rid of the genocidal [Khmer Rouge] regime.

When I was in the army, there were four times that I was wounded. I also got more than 30 wounds on my body and my injuries were ranked on the second rank of invalids. The first rank is the most severe. So, that means that I had lost more than 60 per cent of working capability.

FT: You seem to be much better now!

NTD: I touch on this issue because I try to explain to you that at that time, I couldn’t imagine that I could survive or that I could help our Cambodian friends to get rid of the Khmer Rouge regime. And at that time, I had never thought that I would be the prime minister of Vietnam…..

According to the labour code of Vietnam, the age of retirement is 60, and this year I am already 59. That means, in accordance with the law, I only have one year left.

FT: I’m sure they will ask you to stay on.

NTD: And I think my retirement will be upon the decision of our people and the national assembly, because for our cabinet, tenure would last from 2007 to 2011…And as the prime minister and during my term and together also with the members of our cabinet, I will do the following missions.

Firstly, we will continue to ensure high economic growth for Vietnam, from 8 per cent to 9 per cent per year in consecutive years. Secondly, we will focus on improving the living standards of our people and upgrade social welfare, especially in terms of improving our educational and healthcare systems. We will reduce the prevalence of poverty in Vietnam down to less than 10 per cent.

Thirdly, we will build the government of Vietnam to be a government, a healthy and strong government in order to prevent and to remove corruption. Fourthly, our mission is to keep political stability, along with democracy for all. And moreover we will also focus on the mission of maintaining national defence and security. Fifthly, Vietnam will be a market economy with deeper integration into the world economy, and Vietnam will be a reliable friend and partner with all countries and peoples in the world striving for peace, stability and development.

These are the missions that I, myself, and the members of my cabinet will do and try to do during my term, and I believe that we will be able to make all these missions a reality.

FT: These are very heavy responsibilities. I was wondering what keeps you awake at night. Is it the spectre of inflation or is it bird flu or is it the Chinese navy? There are so many areas that you have to worry about. What are the ones that concern you most?

NTD: In the capacity as prime minister of the government I know this is a heavy mission, but I believe that we can realise all our missions under the leadership of the Communist Party of Vietnam. We are also not over-optimistic about the development future of Vietnam, but I believe that it has a bright future.

Copyright The Financial Times Limited 2010. You may share using our article tools. Please don’t cut articles from FT.com and redistribute by email or post to the web.

Every year, even at the peak of Vietnam’s dry season, when the Red River is at its lowest, Hanoi’s skilled captains manage to negotiate their flat-bottomed boats through its shallow waters. But this year, with a drought gripping the entire country and water levels at record lows, the river is eerily quiet. What is normally a bustling waterway is becoming a winding river of sand, and farmers who depend upon the river for irrigation are watching the expanding sandbars as nervously as the boat captains. “If there is no water in the coming days,” says 59-year-old farmer Vu Thi La, who just put in her spring rice seedlings, “it will all die.”

Across Vietnam, high temperatures and parched rivers are setting off alarm bells as the nation grapples with what’s shaping up to be its worst drought in more than 100 years. At 0.68 meters high, the Red River is at its lowest level since records started being kept in 1902. With virtually no rainfall since September, timber fires are burning in the north and tinder-dry conditions threaten forests in the south. Soaring temperatures in the central part of Vietnam have unleashed a plague of rice-eating insects, damaging thousands of hectares of paddies. “It’s the beginning of everything,” Nguyen Lan Chau, vice director of the National Center for Hydro-Meteorological Forecasting, says gloomily. (See pictures of the world’s water crisis.)

The region most affected — and the one that affects the most — is the Mekong River Delta in the south. Water levels in the nation’s rice bowl have fallen to their lowest points in nearly 20 years, threatening the livelihoods of tens of millions of people who depend on the river basin for farming, fishing and transportation. The biggest problem, however, is not the water. It’s the salt. During the dry season, when channels and tributaries run dry, seawater can creep more than 18 miles (30 km) inland. Vietnam has installed a series of sluice gates to hold back high tides as well as control annual monsoon flooding. This has allowed farmers to switch between growing rice in the wet season and raising shrimp in the brackish waters in the dry. The result has been more-effective land use and higher crop yields, and a doubling of farmers’ incomes in the Delta since 1999.

Those high-yield days may be over. As the drought intensifies, in some places seawater has crept nearly 40 miles (60 km) inland, says Dam Hoa Binh, deputy director of the Irrigation Department at the Ministry of Agriculture and Rural Development in Hanoi. Most of the winter-spring crop has already been harvested, but saltwater is reaching where it has never gone before, putting the summer-fall crop in jeopardy, says Binh. “We are trying to strengthen our irrigation systems to prevent further salinization,” he adds, but the extreme conditions are making it “one of the most difficult situations in 100 years.” (See pictures of drought in Kenya.)

Because of the hydropower projects on its side of the border, China frequently gets the blame for water shortages downstream. Indeed, Vietnam’s neighbor has been on an aggressive campaign to damn the Mekong River, which begins on the Tibetan plateau and travels through five other countries before it empties into the South China Sea. According to the Mekong River Commission, a regional advisory agency, China has built or is planning to build eight dams along the Mekong. But while dams raise huge concerns about interfering with sediment flow and fish migration, they can also have a positive impact, says Jeremy Bird, the commission’s chief executive officer. “They will redistribute the flow of water, therefore there will be more water available in the dry season,” he says. But at the moment, with China also experiencing extreme drought, there appears to be little dammed water to release.

Up north, Vietnam has been busy building hydropower dams as well. The government recently released enough water from those projects to help farmers in the Red River Delta with spring planting. Now with reservoir levels in the north at critical lows, the state-owned electricity company says it can’t let go of much more; power demand is expected to break records as temperatures soar this month. Even with the small amount released, Nguyen Van Thang, director of the agriculture department in Vinh Phuc province, is not hopeful. High temperatures and evaporation are the enemy. “Even if farmers bail every single drop of water to nurture the rice,” he says, he fears that a third of the rice crop in his province could be lost. (See TIME’s photo-essay “China-Vietnam Border War, 30 Years Later.”)

The crisis has been a “wakeup call” for Vietnam, says Ian Wilderspin, senior technical adviser for disaster risk management at the U.N. Development Program in Hanoi. The drought was predicted, he says, referring to last year’s projections that El Niño would bring an unusually warm and dry winter. Yet Vietnam traditionally prepares for floods and typhoons, which are more dramatic and devastating when they hit. “Drought is a slow, silent disaster, which in the long run will have a more profound impact on peoples’ livelihoods,” he says.

And when are the rains due to finally bring some relief? Meteorologists forecast that in the north, rain will arrive later this month. But other parts of the country might not see any precipitation until August, which for many will be too late.

DURING Tet, the lunar new year holiday, money is everywhere in Vietnam. It is dished out to children, gambled in roadside card-games, and splurged on gifts, feasts, and trips to home villages. This leads to an annual bump in inflation. And this year’s spike in the consumer-price index, which rose by 2% in February, seemed bearable at a time of rapid growth. GDP grew by 5.3% last year. It came, however, among some more worrying signs.

On February 10th, just before Tet, the central bank devalued the currency, the dong, by 3.4%, following a devaluation of 5.4% in November. The aim was to entice holders of dollars to buy dong. A dollar shortage has been starving Vietnam’s exporters of the currency they need to purchase imported parts and materials.

The government blamed the shortage on dollar hoarding, but the prime cause was its own stimulus spending. That juicy growth-rate came at a price. It is believed to have spent over $1 billion in 2009 (over 1% of GDP) to prop up the economy, mainly by subsidising banks’ loans to businesses. As a result, the credit supply expanded by 37%, driving up the black-market price of dollars.

Meanwhile, the exchange rate was artificially high, leading to a sharp rise in the trade deficit. Foreign-exchange reserves have shrunk. The government has reluctantly raised state-controlled commodity prices: petrol, electricity and coal are all to be more expensive. All of this has observers wondering whether inflation might be about to take off again, as it did in early 2008.

Some analysts saw it coming. In April last year Jonathan Pincus, an economist who has long followed Vietnam, wrote a paper arguing that Vietnam’s options for responding to the global financial crisis were limited. With a small, open economy, it cannot maintain an overvalued exchange rate and pour in stimulus spending without seeing much of the money leak away into trade deficits. At the time Mr Pincus argued it should depreciate its currency to boost exports, and focus investment on labour-intensive small businesses rather than inefficient state-owned enterprises (SOEs). The government did the opposite. The loan-subsidy programme largely benefited well-connected SOEs, and the currency has been kept artificially strong.

Independent Vietnamese economists have criticised the timing of the government’s devaluations and price rises. If investors expect devaluations every three months, they argue, they will buy dollars and wait for the next one. Foreign businesses, meanwhile, are worried about how the government might respond if inflation does take off. The finance ministry has been circulating a draft decree that would allow the government to impose price controls on a wide range of essential goods. The European Chamber of Commerce has warned that such measures may well lead to nothing but “shortages” and “hoarding”. So March’s inflation data will be closely watched, for evidence of whether February’s were simply a seasonally exuberant blip, or something more dangerous.